The Canadian labor market continued to blow past expectations, adding 150,000 jobs in January despite mounting recession concerns, Statistics Canada reported on Friday.
Robust job gains combined with the unemployment rate holding steady near a record low at 5% should push the expectations of a recession—even a mild one—on hold, or at least push them to the second half of the year.
The report also helped to increase the chance of a soft landing, which had been around 25% in our base case before the release.
One important factor was the downshift in wage inflation. Wage growth plunged for the second month in a row, down to 4.5% year over- year from 5.5% in November. That matched the Bank of Canada’s policy rate of 4.5%.
We expect wage growth to slow further as the economy cools off, giving enough room for the policy rate to be sufficiently restrictive.
Another encouraging sign in Friday’s report was that some of the decline in wage growth was driven by the increase in the labor supply. The participation rate rose 0.3 percentage points in January to 65.7%.
The data suggests that most workers who came back to the labor market could find jobs right away, keeping the unemployment rate even in January. Also, those were good full-time jobs, which increased by 121,100 on the month. Part-time job gains were 28,900.
On the industry level, employment gains came mostly from service industries like trade, health care and education.
As strong as January’s job increase was, that number will most likely be revised downwardly when the February report comes out. December’s revision was quite significant, reducing the gains from 104,000 to 69,200. Still, that bolsters the case for a soft landing even more.